Meta Joins Chorus of Tech Giants Feeling Advertising Pinch in Q3, Net Income Falls 52 Percent

Meta Joins Chorus of Tech Giants Feeling Advertising Pinch in Q3, Net Income Falls 52 Percent

Meta, the parent company of Facebook and Instagram, reported $27.7 billion in second-quarter revenue, down 4 percent compared to the same quarter a year ago, continuing a trend of ad-supported tech companies feeling the pain of a tougher macroeconomic environment and renewed competition from competitors like TikTok.

However, the company beat Wall Street expectations for revenue. The company had previously forecast revenue of $26 billion–28.5 billion for the quarter, so it met its own guidance.

Going forward, however, things look tough. The company forecast Q4 revenue of $30-32.5 billion, below Wall Street expectations, sending its share price lower after hours.

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Meta net income fell by 52 percent to $4.4 billion, while its daily active user base rose by 4 percent to 2.93 billion.

The company is in the midst of a strategic pivot toward the “metaverse,” which it seems to define as being driven by virtual reality and augmented reality. However, its early efforts in the space remain niche, even as it has committed billions of dollars toward investing in the space.

In its Q3 earnings report, the company said it was making “significant changes across the board to operate more efficiently,” including shrinking some teams and keeping others flat, so that it is “investing headcount growth only in our highest priorities.”

Those priorities will include developing its AI discovery engine, its ads and business messaging platforms, and its future investment in the metaverse.

In the near-term, the company expects savings as it “rationalizes” its office footprint.

The AI discovery engine is particularly relevant to Meta’s TikTok competitor Reels, which CEO Mark Zuckerberg says is stealing time spent from the other app. Reels is now a $3 billion annual run rate business, he added.

When the discovery engine is built out, the company will be able to “recommend photos, text, links, communities, short and long form videos, alongside posts from family and friends,” Zuckerberg said, differentiating it from TikTok.

“While we face near term challenges on revenue, the fundamentals are there for a return to stronger revenue growth,” Zuckerberg added in a statement. “We’re approaching 2023 with a focus on prioritization and efficiency that will help us navigate the current environment and emerge an even stronger company.”

Still, on the company’s earnings call, Zuckerberg also projected some optimism, telling analysts that “our product trends look better from what I see than what some of the commentary suggests.”

On Facebook specifically, the number of people using it each day is the highest it has ever been,” he added, noting that it now has nearly 2 billion users, and that WhatsApp’s fastest-growing region is now North America.

Meta’s quarterly report follows similarly disappointing results from Snap and Alphabet, which have also been feeling the pinch of the advertising environment. Snap cut about 20% of its staff last quarter, and saw its losses widen, as it seeks to restructure. It did, however, see double digit user growth.

Alphabet, the owner of YouTube and Google, also missed expectations, with YouTube revenue falling year-over-year for the first time since it was broken out by the company.